Tribunal directs AO to consider multiple houses for exemption, aligning with legal precedents.

The Tribunal allowed the appeal, directing the Assessing Officer to re-compute the assessee's income in accordance with the interpretation that "a residential house property" includes multiple residential houses, as supported by judicial precedents. The Tribunal rejected the AO's decision to restrict the exemption to one residential house property, emphasizing consistency with prior legal interpretations.

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Issues Involved:
1. Interpretation of the phrase "a residential house property" in Section 54(1) of the Income Tax Act, 1961.
2. Legitimacy of the Assessing Officer's decision to restrict the exemption of reinvestment of capital gain to one residential house property.

Issue-wise Detailed Analysis:

1. Interpretation of the phrase "a residential house property":
The primary issue revolves around the interpretation of the phrase "a residential house property" in Section 54(1) of the Income Tax Act, 1961. The assessee contended that the term should be interpreted to include multiple residential properties, whereas the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that it refers to a single residential property.

The Tribunal examined the legislative history and judicial precedents to interpret this phrase. It noted that the Finance Act, 2014 amended the phrase "a residential house property" to "one residential house" effective from 01/04/2015, indicating that the legislature intended to clarify that the exemption was limited to one residential house. However, this amendment was prospective and not applicable to the assessment year 2011-12.

The Tribunal referred to the judgments of various High Courts, including the Hon'ble Madras High Court in Tilokchand & Sons V/s ITO, the Hon'ble Karnataka High Court in CIT V/s D. Ananda Basappa, and the Hon'ble Punjab & Haryana High Court in Pawan Arya V/s CIT. These judgments collectively held that the term "a" can include plural residential houses, and the benefit of Section 54 should be available for investments in multiple residential properties, provided they are purchased within the stipulated time frame.

2. Legitimacy of the Assessing Officer's decision:
The second issue pertains to the legitimacy of the AO's decision to restrict the exemption to one residential house property. The AO had relied on the decision of the Mumbai Tribunal (SB) in Sushila M. Jhaveri to restrict the deduction under Section 54 to the investment made in one flat only, as the flats were located at different addresses.

The Tribunal, however, disagreed with this view. It emphasized that the interpretation of the term "a residential house property" should be in line with the judicial precedents, which allowed for the inclusion of multiple residential properties. The Tribunal noted that the amendment by the Finance Act, 2014 was intended to apply prospectively and acknowledged the judicial precedents for the period before 01/04/2015. Therefore, the AO's reliance on the decision in Sushila M. Jhaveri was not justified.

Conclusion:
The Tribunal concluded that the assessee was eligible to claim deduction under Section 54 for the investment made in both the flats. It accepted the interpretation of the term "a residential house property" as including multiple residential houses, as supported by the judicial precedents. Consequently, the AO was directed to re-compute the assessee's income in accordance with this interpretation.

Order:
The appeal was allowed, and the AO was instructed to re-compute the assessee's income in line with the Tribunal's order. The order was pronounced on 25th January 2021.

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